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July 31, 2008

BIS to lend $500mn to Philippine central bank

The Philippine central bank will get a $500 million short-term loan from the Basel-based Bank for International Settlements (BIS) which it will use to boost its foreign exchange reserves,

Reuters quoted the central bank as saying Wednesday.

While the country's foreign reserves stood at a record $36.7 billion in June, sources said the monetary authority wants to beef up its dollar inventory as it tries to quell a buildup in

inflation due to rising commodity prices.

"The loan will support the GIR (gross international reserves) especially now with the foreign exchange swaps declining," a source said.

Central bank governor Amando Tetangco said the loan was part of normal banking operations, when asked to confirm the loan.

The loan carries a three-month term, central bank sources said. They declined to be identified because they are not authorised to speak on the record to the media.

The Philippine central bank's holdings of foreign currency through forward swaps fell to $6.3 billion at the end of May from a record high of $13 billion early this year as the central bank

stepped up dollar selling to support the declining peso.

The central bank's currency swaps serve as a foreign exchange buffer for the monetary authority.

Like authorities in South Korea, India and Thailand, The Philippine central bank has tried to prop up its currency to help in the fight against inflation, which was expected to stay at

double-digit levels until the first quarter of 2009 after hitting a peak in the fourth quarter of 2008.

The peso, now Asia's worst performing currency after the Korean won has lost 6.5 percent against the dollar so far this year. In contrast, the peso was Asia's top performing last year,

gaining 19 percent.

The central bank has said the country was expected to end the year with foreign reserves of $35 billion to $37 billion against $33.7 billion at the end of 2007.

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